Natural Gas Pipelines and Monopoly

Abstract

The natural gas pipeline industry is no longer a protected natural monopoly. Regulation policy favors increased competition and open access to the transportation network. Entry barriers to the commodity are not sustainable with the emergence of an active spot market. Bypass of the local distribution facilities by heavy users is occurring. With growing competition, pipelines are seeking more flexible rates to keep major customers on the system. Gas companies are shifting from a fully bundled package of end-to-end services toward a multitude of services a la carte. All the elements of vigorous competition seem to be in place. But this Pollyannish view ignores the presence of significant economic factors that support the continued social control of the industry. These factors are the presence of a monopoly bottleneck transportation facility, decreasing costs both short- and long-run, vertical integration, and the growing incidence of pipeline mergers and acquisitions. The goal of this chapter is to bring these two conflicting views into perspective. It is clear that the problems of the natural gas industry must be evaluated from a broad analytical approach.